At Around the Tax World, you can find out all about what’s going on in the wonderful, worldwide world of tax. Every month, we’ll feature a few mini-articles on what’s been going on in the world when it comes to tax, and fully available for viewing even if you don’t have a subscription.
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Check out what’s happening all around the world of tax!
In The Headlines
Want Judy Garland or James Dean to read you the news? AI startup ElevenLabs
can make this dream come true. The company recently announced that it had finalized
deals to use the voices of Old-Hollywood icons Laurence Olivier, Burt Reynolds, Judy
Garland, and James Dean in their new Reader App. Users can listen to these now-
deceased stars narrate text from their phone—from ebooks and articles to work memos.
The use of AI to recreate famous voices has been a source of recent controversy. Earlier
this year, a fake robocall imitating President Joe Biden told New Hampshire residents
not to vote in the presidential primary. The estates of the celebrity voices used by
ElevenLabs have affirmed that they are excited to see their family member’s legacy live
on.
● A dispute between Disney and DirecTV causes sports fans to miss out on major
moments. Disney-owned channels including ESPN went off the air on DirecTV during
the fourth round of the U.S. Open tennis tournament and amid the start of college
football season. ABC-owned stations and the Freeform, FX, and National Geographic
channels also went dark during this time. The sudden “blackout” was due to failed
negotiations between Disney and DirecTV. A similar instance occurred last year when
Disney and cable TV provider Spectrum remained in a stalemate for 12 days, leading
right up to the first Monday night NFL game of the season. Networks and distributors
have struggled to come to an agreement over when content is made available and how it
is sold. Tension has arisen when shows have appeared on direct-to-consumer platforms
before channels and over the use of bundled versus a la carte subscription models.
● Fraud is on the rise with Bitcoin ATMs. Scammers may pose as customer service
representatives pretending to be helping victims protect their assets from an account
breach. Victims are instructed to deposit cash into a Bitcoin ATM by scanning a QR code
connected to a digital wallet. Once the money is converted into bitcoin, it is immediately
transferred to the scammer. Scammers may pose as employees of a government
agency or well-known business like Apple or Microsoft. The Federal Trade Commission
estimates that consumers lost over $110 million to fraudsters conducting Bitcoin ATM
scams last year—a nearly tenfold increase since 2020. The majority of victims are over
age 60. Though Bitcoin ATMs are banned in certain countries, the U.S. currently has
around 32,000 nationwide.
What's New In The Tax World?
Should unrealized stock gains be taxed? Presidential candidates continue to stir up conversation with their proposed tax policies. The idea was first introduced by the Biden administration and now is being carried on by current
vice president and Democratic nominee Kamala Harris—to tax stocks as their value increases instead of only when a holder sells them. Harris’ plan would only apply to taxpayers whose net worth is at least $100 million, which amounts to about 10,660 people currently living in the U.S. Estimates suggest that the top 1% wealthiest Americans have 40% of their wealth sitting in unrealized capital gains. The proposed tax would also only apply to tradable assets, which does not include real estate or shares in private startup companies.
Supporters of the proposed tax argue that the wealthy are able to avoid paying taxes on this income by buying assets and then borrowing against the value of those assets to buy more and increase their wealth tax-free. However, opponents say that such a tax could call into question important matters of property rights and financial privacy. Others argue that if the stock market plummets, these unrealized stocks would lose their value, and the taxpayers could end up paying taxes on an asset without receiving any value from it. The Biden administration’s original proposal attempts to correct for that possibility by assessing the tax over the course of five years instead of all at once.
Harris’ plan may encounter opposition from multiple angles. First, new legal obstacles may be in the way. A recent Supreme Court decision in the case of Moore v. United States may have laid the foundation for barring the implementation of a “wealth tax.” Second, the tax may not receive
approval from Congress. President Biden was unable to get the proposal passed even with Democratic majorities in the House and Senate.
Conversely, Republican candidate Donald Trump’s plans revolve around extending the tax cuts he introduced during his presidency via the Tax Cuts and Jobs Act. Additionally, he has proposed lowering the corporate tax rate and eliminating tax on Social Security income. Proponents of Trump’s plan say that his tax policy would provide tax cuts to more Americans. However, opponents argue that the majority of cuts would benefit the country’s highest income earners and result in a much higher increase to the national deficit.
State-By-State Updates
Alabama taxpayers may be asked to boost school funding—by paying a higher
online sales tax. A new bill would increase local sales tax on goods sold by online
“marketplace facilitators.” The state considers a marketplace facilitator to be a person
who contracts with marketplace sellers to help with any aspect of the sales process. This includes providing the platform on which buyers can find and purchase products,
processing payments, fulfillment or storage services, advertising and promotions, and
similar functions. If the bill passes, an additional 1.25% tax will be levied on every sale on top of the current 8% sales tax. The revenue raised would be distributed to local
boards of education.
● Colorado voters will decide who gets to call the shots on property taxes. The state
House recently passed a resolution that would leave this question up to taxpayers:
should tax decisions be made on a local level? If the Senate approves the resolution,
Coloradans will decide this November whether to give control of property tax decisions
to local governments. Proponents of this measure say that the needs across the state
are too diverse for a centralized approach, and communities should decide for
themselves how to deal with collecting revenue and how to spend it. In Colorado,
property taxes pay for local government services, such as public schools, fire and
emergency response, and public safety—the funds do not currently support state-level
government services.
● Nebraska continues its debate over property tax relief. Governor Jim Pillen has been
advocating for 40% total property tax relief by the end of his second year as governor.
However, in a special session completed just last month, legislators only approved an
increase of 3% to 4% in property tax relief, resulting in a total of 20% so far. The special
session also resulted in $185 million in school tax relief, most of which would come
through budget cuts. Yearly property tax increases are now limited to either the inflation
rate or 0% in times of deflation—whichever is greater. Lawmakers also introduced an
automatic income tax credit for property taxes paid in a 2020 program.
● Pennsylvania’s new budget includes bigger benefits for historic preservation
projects, increasing its tax credit program to $20 million. Previously, Pennsylvania’s
Historic Preservation Tax Credit program was capped at $5 million per year.
Rehabilitation projects could receive a tax credit to cover up to 25% of qualified
expenses with a maximum credit of $500,000. On average, about 15 projects each year
take advantage of this credit, and most receive less than $500,000. Advocates for
expanding this program still have unmet desires on their wish list. One is to increase the
per-project cap from $500,000 to $2.5 million. Another is to remove a restriction that bars projects with a nonprofit partner.
Tax Planning Tips
Which Tax Cuts and Jobs Acts provisions are scheduled to expire in 2025? The upcoming
election has brought these tax cuts to the forefront of conversation, along with the question of“to extend or not to extend?” If Congress does not take action, many of the provisions passed in 2017 will sunset, and tax regulations will return to where they stood before. What shifts should we be keeping an eye out for?
The qualified business income deduction is set to expire after December 31st, 2025. This 20% deduction applies to “pass-through” businesses, such as sole proprietorships, partnerships, S corporations, trusts, or estates. Investors may also be impacted by the expiration of the opportunity zone benefit. This tax break allowed investors to defer tax on capital gains if they reinvested that money into Qualified Opportunity Funds, which encourage economic development in low-income communities.
High-income earners should also look out for the top ordinary income tax rate to jump up from 37% to 39.6%. Meanwhile, the Alternative Minimum Tax will decrease and likely require more high earners to pay this minimum tax. The standard deduction will also decrease for all taxpayers who opt not to itemize their deductions.
Finally, the cap on state and local tax (SALT) deductions will end, allowing taxpayers to deduct the full amount paid each year, and personal exemptions and certain itemized deductions removed by TCJA will be reinstated. This will include deductions for accounting fees, home offices, mortgage interest, and home equity loan interest.
What would happen if Social Security taxes were eliminated? As presidential hopefuls continue to roll out new tax policy ideas, Donald Trump has named the possibility of eliminating taxes on these retiree benefits. How would this change play out? Tax experts have noted that the tax break would mostly help higher-income seniors, since retirees who earn below a certain amount do not currently pay taxes on Social Security benefits. Currently, about 40% of seniors pay taxes on their Social Security checks.
Opponents of this tax break say that eliminating taxes would increase stress on an already floundering Social Security program. The Old Age and Survivors (OASI) Trust Fund, for instance, will run out of funds within the next ten years and become dependent on payroll taxes for funding. Opponents have instead suggested introducing reduced capital gains or earned income tax levels for seniors or offering 100% tax deduction for premiums spent on long-term care insurance policies. Advocates for this tax break point out that the average senior household would save $560 a year if they did not have to pay tax on Social Security, boosting seniors’ income at a time of rising cost-of-living.
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CURRENT EDITION
Popular Tax Shelter for the Ultra-Wealthy Comes onto the Radar
In a recent turn of events that has caught the attention of financial experts and policymakers alike, Senate Finance Committee Chairman Ron Wyden, D-Ore., has unveiled the results of an 18-month investigation into the use of Private Placement Life Insurance (PPLI) by the ultra-wealthy. The investigation, the first of its kind focusing on PPLI, highlights the use of these policies as a significant tax shelter mechanism, revealing the ways in which a small number of wealthy individuals are leveraging them to avoid substantial tax liabilities.
Don’t Let the IRS Put Your Client in The Penalty Box
There’s only one thing worse than your client overpaying their taxes when you could have helped them – them not paying enough in taxes and having to deal with penalties as well. It’s like adding insult to injury. There is only so much that we can do to help our clients avoid penalties. Educating ourselves, so we can educate our clients, is a big part of that. Penalties are inevitable, but that doesn’t mean that the client must max out their penalties. But it also doesn’t mean that we should not do our due diligence to avoid penalties where possible.
Remind Your Clients About Higher-Education Tax Credits
A new school year is here and, for many families, so are the worries over the cost of tuition and other college expenses. The cost keeps skyrocketing every academic year, and these days that diploma comes with an average of almost $29,000 in debt for most graduates. Many of them also carry that debt well into middle age. Families paying for these educations need every break they can get. The federal government offers education tax credits (and other tax breaks on college costs), but don’t assume your client has the brain space at this stage of life to learn about them. Even your clients who can afford college would appreciate learning about ways to save on higher education. Here’s what to tell them.
